Approved classification cannot justify retrospective duty recovery; Modvat credit flowing from that approval is confined to prospective effect.

An approved classification list, once acted upon, could not be reopened to support retrospective duty recovery where the department had not invoked the extended limitation period under the proviso to Section 11A. The reassessment therefore operated only prospectively, and past-period demands based on reclassification were not sustainable. Because the Modvat credit utilisation flowed directly from that approved classification, it was not an independent basis for a separate recovery demand. The credit consequence also could not be split off to justify retrospective liability. The impugned order was set aside and the assessee succeeded.

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Issues: (i) Whether a demand arising from reclassification of goods could be enforced retrospectively when the approved classification list was reviewed without invoking the proviso to Section 11A; (ii) whether the utilisation of Modvat credit, which flowed from the approved classification, could be treated as an independent and recoverable wrong utilisation.

Issue (i): Whether a demand arising from reclassification of goods could be enforced retrospectively when the approved classification list was reviewed without invoking the proviso to Section 11A.

Analysis: The approved classification list was acted upon by the assessee, and the department had not established circumstances warranting invocation of the extended period under the proviso to Section 11A. Once the department reopened its own earlier approval, the resulting reassessment could not be given retrospective effect for recovery of duty-related demands.

Conclusion: The demand based on reclassification could operate only prospectively and the retrospective recovery was not sustainable; this issue is decided in favour of the assessee.

Issue (ii): Whether the utilisation of Modvat credit, which flowed from the approved classification, could be treated as an independent and recoverable wrong utilisation.

Analysis: The credit utilisation was not independent of the approved classification list. Since the entitlement and utilisation of Modvat credit arose from the department's own approval, the consequences of the later reclassification could not be split off to sustain a separate demand for past periods.

Conclusion: The alleged wrong utilisation of Modvat credit was not independently recoverable on the facts; this issue is also decided in favour of the assessee.

Final Conclusion: The impugned order was set aside and the appeal succeeded because the reassessment of the approved classification could not justify retrospective recovery.

Ratio Decidendi: Reopening an approved classification list without invoking the extended limitation provision does not permit retrospective recovery, and credit consequences flowing from that approval are likewise confined to prospective effect.

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